Great Expectations for 2006--If You Have the Talent

The American Lawyer is out with their annual survey of the AmLaw 200 managing partners (147 responded this year—summary Q&A results here), and while the news is almost overwhelmingly good (at least if you're a partner in the AmLaw 200, and not a client of them), there's what may be a storm front on the distant horizon.

First, the good news:

• 89% are "optimistic" about next year, and 0% pessimistic; the other 11% are merely "uncertain."
• And why shouldn't they be optimistic?  A stunning 95% expect profits per partner to grow next year, and 68% expect PPP to be up more than 5%.
• 78% expect deal flow to increase "moderately," 8% "significantly," and only 13% expect it to "stay flat;" precisely 0% foresee a decrease.
• 99% (99%!) expect to raise billing rates in 2006, by about 5% on average.
• Only 5% expect their incoming associates' class to be smaller than this year; slightly over one-third anticipate it will be the same  size, one-quarter say it will grow less than 5%, but fully one-third say it will grow by more than 5%.
• But those associates won't cost much, if any, more per capita:  37% anticipate no increase in starting salaries, 27% an increase of less than 5%, and 36% an increase of more than 5%.  Given that starting salaries have essentially been frozen since 2000, this indicates a relatively militant cost-containment mentality.  (Although essentially everyone admits that if one major firm jumps ahead, the thundering herd will follow.)  As for what associates have to say about this?

  "Associates are definitely getting fed up with how flat salaries have been," says an associate at O'Melveny & Myers. "It's not because we don't think we're paid enough, it's watching the partners' share increase while ours stays the same. We're more like regular employees as the years go by and not partners in training."

This comment exposes the potential storm clouds.  As the pithy and insightful Aric Press puts it, "the war for talent has returned."  And it's a war both for partners and associates.  As for partners, there are just not enough "game-changing" candidates for most firms to differentiate themselves through lateral acquisitions—though that scarce has discouraged them from trying.  (One-quarter of the firms fess up to being on the prowl for a "merger," and my strong suspicion is that that number would double if not triple if the question were recast, and truth serum administered, to include "acquisitions of small [non-equal] firms" and "material lateral groups.") 

The market for partners, in other words, has reached a type of mature equilibrium.  You may like it or—judging by the number of firms citing the inability to grow as fast as they'd like in key markets including China, London, and New York—you may not, but this seems to be reality for now.   In other words, deal with it.

The associate market is where it gets more interesting, and dicier.   Since I can't phrase it better than Aric, I'll let him say it:

"Firms complain bitterly that these young lawyers are leaving before the firms can fully recoup their investments in them. They have no one to blame but themselves. The profitability model is built on churn."

And don't kid yourself: The associates know that as well as you do.  They're "infantry fodder," and the partners' munificent compensation intrinsically depends on washing out as many associates as possible, stopping just short of completely and utterly blowing up the potential-partnership-carrot.

Sure, you're saying, but this model has worked for decades and decades; what, me worry now?

Permit me, or rather, The Wall Street Journal, to suggest what's different this time:  Gen X (roughly, those aged 25 to 40).   They are not your Baby Boomers in attitude.   Gen X'ers do not identify themselves by what they do, insist on work/life flexibility and balance, and will willingly forgo promotions to maintain that balance.  When asked to rank the ten  most important characteristics of a job, Gen X substitutes "flexibility" in the slot where Boomers put "meaningful work."

What, then, is to be done? 

McKinsey suggests a new breed of software tools, which include deep skills assessments and artificial intelligence algorithms, to better match knowledge workers with projects.  What does this mean?:

"By sifting through a database of employee skill sets, the tools generate staffing solutions to meet current demand and to anticipate priorities for emerging projects. The deployment of these solutions at a technology-consulting firm has cut project completion times by 10 to 40 percent and overall resource requirements by 25 to 40 percent."

And, this article was written three years ago—the tools have only improved.

It gets better.  The tools don't just assign warm bodies based on availability; they intelligently select people best-suited to each project, weighing a combination of prior experience (so they know where to begin) and opportunities for professional development (so people are challenged and can grow and expand their competency set).   And that's the key.  Challenged, growing associates are less tempted to leave—and more likely to look like bona fide partnership material 8 or 10 years from  now.  After all, they literally will have done more different things and know more as a lawyer.

McKinsey uses the hypothetical (or is it?—sometimes I wonder with McKinsey) of "a corporate-law firm that has a lackluster development or retention strategy and high levels of attrition among its [associates]."   Stopping well short of the more ambitious goal of giving the tempted-to-bail associates more challenging work, McKinsey posits what could happen if the software were simply able to identify a pattern of associates who work with a particular combination of senior partners suffering an abnormally high (even for this firm!) defection rate.   Knowing such a pattern exists, the firm might be able to reduce attrition simply by changing assignment patterns.  And as we, and McKinsey, know, less attrition means increased utilization means increased realization and collection.

What customer relationship management tools are to business development, and what risk management tools are to finance, human-capital tools may be to staffing and assignments.  All your firm has to sell is talent.  Consider arming yourself with this new weapon in that war.